On Tuesday, GBP/USD was subdued below the 1.3300 level. Investors had been looking forward to the Bank of England’s next interest rate increase. Scheduled for release on August 7, 2025, at 11:00, the consensus among analysts indicates a reduction in the current interest rate from 4.25% to 4%. This expected change would be the fifth reduction in the Bank of England’s monetary policy easing cycle. That cycle began last year, in August 2024.
For reference, the BoE’s guidance language in June stressed the need to be “gradual and cautious” in the process of tightening monetary policy. This new guidance requires a tricky balancing act. Fears are mounting across the length of the UK economy, from future slowing labor market growth to worries about the inflationary progression. Investor fears have been compounded by the specter of stagflation. Instead, many are now looking for a 25 bp cut from the central bank as they bide their time.
Current Market Conditions
The GBP/USD pair is coming under fast pressure across the FX complex. This negative perspective is based primarily off of a recent breakdown of the Head and Shoulders chart pattern. The GBP/USD pair’s 20-day Exponential Moving Average (EMA) has a downward slope approaching the level of 1.3395. This important technical indicator has traders firmly believing that the smart money is expecting more downside from the Pound.
It’s notable that as of Tuesday, Pound Sterling was attempting to hold the line at 1.3280 against the US Dollar through European trading hours. Long-term investors are still focused on important support levels. As for the long-term price action, the May 12 low of 1.3140 will be very important in determining where the currency pair will develop in the future.
The economic backdrop is as equally dire across the pond. In case you missed it, June’s Consumer Price Index (CPI) report was just released and both headline and core inflation shot up when analysts were largely expecting the opposite. This data adds to fears of stagnation within the UK economy and could influence the BoE’s forthcoming decision on interest rates.
Implications of BoE’s Decision
A lot is riding on the decision by the Bank of England (BoE) over interest rates—not only for the UK economy but for currency markets. If the BoE proceeds with a cut to 4%, it will signal a continued commitment to supporting economic growth amid challenging conditions. The prevailing economic conditions across the nation have fostered an atmosphere of trepidation among consumers and businesses across the board.
Financial market analysts are warning that even a small change from the predicted quarter-point cut would trigger severe turmoil in the currency markets. If the BoE goes more hawkish, a more hawkish path would restore some confidence in the Pound Sterling. If they don’t act, that could do more to dent confidence and exacerbate fears of inflation and stagnation.
Investor sentiment is being influenced by outside factors, including upcoming US economic data. Final revisions to the S&P Global PMI and July ISM Services PMI are set to fall during North American trading hours. First, these updates will benefit competition, especially by changing the balance of market power. Market participants are eagerly watching to see if the DXY can find a bottom. After an extraordinary drop last week, the index today stands at approximately 98.80.